Are Mortgage Rates Poised to Skyrocket?
Tuesday, September 29th, 2009| Are Rates Poised to Skyrocket? Monday, September 28, 2009 - By Staff Writer, Originator Times |
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WASHINGTON, DC - Last week, the Fed’s Federal Open Market Committee announced that they were leaving rates unchanged. However, what wasn’t reported by main stream news organizations is the real story.
According to the statement released by the Fed, in an effort to “provide support to mortgage lending and housing markets” they will “purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt.” Additionally, “they expect to gradually slow the pace of these purchases in order to promote a smooth transition.”
So just what does this mean for rates? “In short - They are going to go up. It’s simple supply and demand,” says Scott Messina, publisher of Mortgage Market Live. “Just how fast remains to be seen, it really all depends on how fast the Fed turns off the spigot.”
This year in an effort to stimulate housing and the economy at large, the Fed began purchasing the oversupply of debt. Without this “help” from the Fed, rates would have been forced higher to attract more investors. Instead the Fed has been quietly buying this oversupply to keep rates artificially low.
“The problem of course, is once this helping hand is pulled back, rates have no where to go but up.” added Messina. “The saving grace is that rates will likely be very volatile for the next several months. Originators should always remember that volatility can equal opportunity.”
“If you’ve watched rates over the last several weeks, there has been at least one day each week that was preferable for rates. Originators that knew which day to lock in their customers loans have saved their customers, on average over a quarter of a percent in rate.”
So how can an originator take advantage of the volatility?
Simple, just keep your eye on the Mortgage Backed Securities (MBS) Market. After all it is the MBS market that directly effects mortgage rates, not Treasury securities. But obtaining MBS data can get expensive. In fact, some services charge upwards of $100 a month for access to this important information.